FINNAIR GROUP INTERIM REPORT 1 JANUARY – 31 MARCH 2010 Operational loss halved from the previous year Summary of the first quarter’s key figures – Turnover fell by 6.6% to 481.5 million euros (515.7) – Passenger traffic declined by 5.7% from the previous year, passenger load factor rose from the previous year by 4.9 percentage points to 80.0% (75.1) – Unit revenues from flight operations per revenue tonne kilometre fell by 6.3%, unit costs per revenue tonne kilometre fell by 10.6% – The operational result, i.e. EBIT excluding non-recurring items, capital gains and changes in the fair value of derivatives, was a loss of 26.3 million euros (47.5 loss) – The operating loss was 25.9 million euros (24.3 loss) – The result before taxes was a loss of 29.4 million euros (25.0 loss) – Gearing at the end of March was 30.2% (14.9) and gearing adjusted for leasing liabilities was 91.9% (91.5) – Balance sheet cash and cash equivalents at end of the quarter totalled 523.3 million euros (374.8) – Equity ratio 34.6% (34.0) – Equity per share 6.51 euros (5.82) – Earnings per share –0.19 euros (–0.15) – Return on capital employed –8.3% (–5.4) – Operational punctuality of flights 71.4% (87.0) In this interim report, figures for 2009 are presented in brackets after the 2010 figures. President & CEO Mika Vehviläinen on the interim result: In terms of scheduled traffic, the year began with a slight rise in demand. In March, demand rose by 20 per cent from the previous year. Unit revenue still declined, but during the quarter the trend was positive. In March, turnover in the Airline Business segment rose for the first time since the beginning of the economic downturn. There are clear signs of growth in markets outside Finland. Our flights from Asia to Finland and onward to Europe – and from Europe via Finland to Asia – are carrying more passengers who change flights at Helsinki-Vantaa and continue from there on their journey. Compared with its competitors, Finnair has increased its market share in traffic between Asia and Europe. Cargo demand is also rising strongly. We plan to begin flights with cargo aircraft from Asian locations to the Northern European market. A good start to spring was spoiled by the spread of the volcanic ash cloud across Europe, which halted air traffic over nearly the entire continent for a week. Estimates of the losses incurred by Finnair are already 20 million euros, but recovery of demand will take weeks further affecting profitability. There is every reason to expect, however, 1
a return to the earlier positive trend at the latest during the second half of the year. This positive development will be overshadowed by the rise in fuel prices and the strengthening of the dollar that have taken place during the spring. I believe, following the dispersal of the ash cloud, that we will continue to carry increasing passenger numbers, because business travel in Asia and Europe is on the rise. The passenger load factors of our Asian flights are high and in scheduled traffic our capacity is growing. Work to improve our profitability will continue, because only by being cost- competitive can we succeed. In the early part of the year, unit costs clearly fell more than the decline in revenues. Most of the targets of our 200 million euro cost improvement programme have been recognised. Majority of the programme is being implemented, but further efforts are still required. Personnel have participated in joint measures to achieve flexibilities. At the beginning of April, Finnair’s personnel representatives and management met to consider the ways in which the company’s future could be best secured. It is excellent to observe how committed and professional our personnel are. We have just come through a significant crisis situation, so it is difficult to estimate how quickly we will return to a growth track. Before the stoppage of air traffic, the signs were encouraging, however. We expect our profitability to improve towards the end of the year. Market and General Review After a difficult 2009, demand for Finnair’s scheduled traffic picked up in the early part of 2010. In March scheduled passenger traffic demand grew by nearly 20 per cent. Traffic performance overall, however, has been nearly at last year's level owing to a reduction in leisure flights by around 30 per cent. Demand among European airlines returned to cautious growth in December last year. In the first quarter, the price level of Finnair’s flight tickets was around seven per cent below the previous year’s level, which is the main reason for the decline in turnover. The fall in the average price is due primarily to a sharp decline in business travel compared with the previous year. In the early part of the year, business travel demand has begun to recover, but demand comes mainly from outside Finland – from Scandinavia and the rest of Europe as well as from the Asian market. Through capacity cuts, it has been possible to raise the passenger load factor to an excellent level. Cargo demand began to revive already at the end of last year, anticipating an improvement in economic conditions. Operationally the quarter began in difficult conditions, when exceptionally poor weather disrupted air traffic in Finland and elsewhere in Europe. In addition, the quality problems in ground services which followed outsourcing arrangements were also reflected in the punctuality of baggage handling. The punctuality of air traffic rose in March to normal levels. 2
Since mid-April, air traffic has been disrupted throughout most of Europe by an ash cloud originating from a volcanic eruption in Iceland. Finnair also had to cancel over 1,700 flights and more than 140 000 bookings. Financial Result, 1 January – 31 March 2010 In January–March, the Finnair Group's turnover was 481.5 million euros (515.7), which is 6.6 per cent lower than the previous year. The Group’s operational result, i.e. EBIT excluding non-recurring items, capital gains and changes in the fair value of derivatives, was a loss of 26.3 million euros (47.5 loss). The result before taxes was a loss of 29.4 million euros (25.0 loss). Changes in the fair value of derivatives had a 0.4 million euro positive effect on the result reported for the first three months of the year. The corresponding item the previous year improved the reported result by 23.4 million euros. In January–March, Finnair's passenger traffic capacity contracted by 11.5 per cent and revenue passenger kilometres fell by 5.7 per cent. Asian traffic increased by 10.1 per cent. The passenger load factor for all traffic rose by 4.9 percentage points from the previous year to 80.0 per cent. The amount of cargo carried grew from last year by 23.4 per cent. In Group passenger traffic, total unit revenues per passenger kilometre fell by 2.3 per cent. Yield per passenger fell by 5.2 per cent. Unit revenues per tonne kilometre for cargo traffic declined by 3.1 per cent. Compared with the previous quarter, the price level improved slightly. Weighted unit revenues for passenger and cargo traffic fell by 6.3 per cent. In the first quarter, euro-denominated operating costs fell by 9.9 per cent as turnover declined by 6.6 per cent. Unit costs per revenue tonne kilometre fell by 10.6 per cent, and by 6.5 per cent excluding fuel costs. All of the significant cost items fell due to lower operating levels as well as implemented efficiency measures. Fuel costs, including price hedging, fell by 20.1 per cent. An item of around eight million euros was transferred from personnel expenses as part of ground handling and catering costs arising from the outsourcing of baggage handling and cargo warehousing activities. Depreciation as well as fleet material purchases and overhaul costs have increased. Depreciation increased due to new aircraft acquisitions. Overhaul costs rose due to delivery overhauls of MD-11 and Boeing 757 aircraft. Net operational cash flow was –17.9 million euros (-73.4). Earnings per share for January–March amounted to –0.19 euros (–0.15). 3
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